How to Use a Rewards Credit Card Without Risking Debt

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Posted October 15, 2012 by Kelley Long in Life After Five

When I shared my Financial Ground Rule about putting away credit cards until you’re out of debt, a Facebook discussion ensued about using rewards cards as long as you pay the total balance off each month. It totally works as long as you start out with no credit card debt and stay that way. But this is also how many people end up in debt in the first place (there’s a reason that card companies offer those plush rewards).

They start off paying the balance each month, but then somewhere they lose control. An emergency expense or an over-the-top vacation comes into play. Sometimes it’s just a late expense reimbursement check. They’re forced to carry a balance over to the next month and before they know it, they owe thousands with no zero balance in sight.

Sound familiar? At this point the only way to get back to debt-free is to stop using the card until the balance is back to zero. Hence Financial Ground Rule Number 3.

But let’s get back to reaping those rewards without the pain. There is a right way to do it! I use my Gap rewards card for every purchase, and I pay it off each month.

The key to avoiding the scenario above is to make sure you have enough cash available when it comes time to pay off your card each month, right? The only way to do this is to treat the swipe of your credit card as if you were laying down actual dollar bills – every swipe. Even with emergencies or extraordinary events.

And you can’t mix and match spending with cash and credit, swiping your bank debit card here and your rewards card there. You have to pick one.

It’s hard to do that when the dollars are still sitting there in your checking account looking so pretty and spendable, but it’s a matter of awareness and discipline. Personally, I track my rewards card balance against my checking account on an almost daily basis. If the two balances get too close together, I know I need to tighten the belt a little until my next paycheck.

I know how tempting it is to only pay a portion of the balance, especially when you’ve had an expensive month. When my cat had surgery this summer, I spent weeks bringing my lunch to work so that I could keep it under control. I really needed some new clothes and there were great sales going on, but I also knew that if I succumbed to the temptation, it could be months before I felt back in control of my money. Not worth it.

You know how you talk yourself out of eating an entire bag of Dorito’s by imagining how peeved you’ll be later when you’re sweating it out on the treadmill? Apply that same skill here, and stay on top of your rewards card use. It will be so much more fun to redeem the rewards knowing that they truly are a bonus, and not just something you are paying for in a different way with interest charges and the pain of debt.


About the Author

Kelley Long

Kelley Long is a CPA/PFS and CFP® who believes that the true meaning of financial security means having choices in life. Formerly the head of her own practice, KCL Financial Coaching, Kelley parlayed the knowledge and experience gained from starting her own business into her dream job as the Director of Communications and Marketing for the Chicago-based CPA firm Shepard Schwartz & Harris. She’s also a volunteer and media ambassador for Feed the Pig and 360 Degrees of Financial Literacy. In Kelley’s perfect world, everyone would feel great talking about their money concerns, fears, questions and problems, because then everyone would see that we ALL have those concerns, fears, questions and problems. Kelley lives in Chicago where she also teaches BODYPUMP group fitness classes at the Chicago Athletic Clubs.

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